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CAR Inc. will be liquidated in one year. The value of CAR’s assets is currently $650 million, and next year it will be either $825 million or $400 million. Before shareholders can be paid next year, CAR will have to repay $500 million of debt. (I.e. CAR has zero coupon debt outstanding with exactly one year to maturity and a total face value of $500 million.) The risk free rate is 4%.
a) What is the current value of CAR’s equity?
b) What is the current value of CAR’s debt?
Martell Mining Company's ore reserves are being depleted, so its sales are falling. Also, because its pit is getting deeper each year, its costs are rising. As a result, the company's earnings and dividends are declining at the constant rate of 8% pe..
FFDP Corp. has yearly sales of $28 million and costs of $12 million. The company’s balance sheet shows debt of $54 million and cash of $18 million. There are 950,000 shares outstanding and the industry EV/EBITDA multiple is 7.5. What is the stock pri..
Assume both portfolios A and B are well diversified, that E(rA) = 14.8% and E(rB) = 15.8%. If the economy has only one factor, and βA = 1 while βB = 1.1, What must be the risk-free rate?
Suppose an investment will pay $1,000 ten years from now. If you can earn 6% annual rate by depositing your money in a bank, how much should you pay for the investment today?
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You purchased one EAW, Inc. 6 percent coupon bond one year ago for $1,020. The bond makes annual payments and matures four years from now. You sell the bond today when the required return is 5 percent. The inflation rate was 2.8 percent over the past..
When a project has multiple rates of return:
A company wishes to select the best of three possible computers, each expected to meet the University's growing need for computational and storage capacity. The three computers— A, B, and C—are equally risky. Calculate the NPV for each computer over ..
A factory forecasts to produce the following cash flows: If the cost of capital is 6%, what is the factory's present value?
If the value of a share of stock is the present value of future dividends, how is it possible that value could actually increase with a reduction of dividends to invest in new assets?
The present value of the following cash flow stream is $8,400 when discounted at 9 percent annually. What is the value of the missing cash flow?
What are the major arguments made by credit and marketing professionals for the extension of trade credit? Why are credit departments in banks and major corporations implementing expert systems?
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